Chemical sector may report growth in operating profit both sequentially and YoY in Q1FY23 – Check details here

JM Financial continue to prefer contracted players as they provide high volume growth visibility along with margin pass-through with a certain lag in some cases.

The sector would have been a challenge for most of them to simultaneously manage volumes and margins:

Mere a handful of players from the chemical segment are likely to report both quarter-on-quarter and QoQ and Year-on-Year (YoY) EBITDA growth, namely SRF, PI Industries, Clean Science, and Navin Fluorine during the first quarter of the financial year 2021-23, JM Financial in a Q1FY23 preview.

The brokerage said, “Q1FY23 would have been their first full quarter of elevated crude prices along with continued supply chain challenges. Hence, it would have been a challenge for most of them to simultaneously manage volumes and margins.”

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It added, “SRF will continue to benefit from high ref gas prices while Navin will benefit from gradual contribution of HPP and specialty chemicals contracts. PI’s domestic business will perform well owing to seasonality offsetting weakness in CSM business. Clean Science will benefit from price hikes amidst a sequential drop in phenol prices.”

JM Financial continue to prefer contracted players as they provide high volume growth visibility along with margin pass-through with a certain lag in some cases.

SRF’s 1QFY23 EBITDA is likely to rise 2%/44% QoQ/YoY mainly on account of 5%/38% QoQ/YoY sales growth driven by higher ref gas prices and specialty chemicals sales, despite a marginal sequential decline in EBITDA margin to 25.8% (vs. 26.4%/24.6% in 4QFY22/1QFY22) driven by moderation in margins of packaging films and technical textiles.

Navin Fluorine’s EBITDA is likely to grow 7%/31% QoQ/YoY led by i) 3%/31% QoQ/YoY sales growth owing to ramp-up of additional capacities of specialty chemicals and HPP contract and higher EBITDA margin at 24.8% (vs. 24.0%/24.8% in 4QFY22/1QFY22).

In 1QFY23, Deepak Fertiliser’s phenol-acetone realisation declined 2% QoQ while phenol-acetone spreads over benzene propylene have fallen 5% QoQ. This, along with some hit to the production volume on account of fire-led plant shutdown will result in 3% sequential moderation in sales.

UPL’s 1QFY23 revenue is likely to see 8% YoY growth on account of robust demand for pesticides and EBITDA is likely to demonstrate 20% YoY growth driven by positive operating leverage.

For PI, CSM revenue is likely to see a 5% sequential dip since 1Q tends to be weak for PI’s export business while the domestic business is likely to show 5% YoY sales growth. Moreover, on account of slight moderation in EBITDA margin to 22.2%, EBITDA is likely to rise 4%/29% QoQ/YoY.

Fine Organics and Tatva Chintan: We estimate Fine Organic’s Q4FY22 sales to rise by 10% sequentially. However, decline in gross margins is likely to result in a 6% sequential drop in EBITDA. For Tatva, we estimate 4% QoQ increase in sales on account of higher PTC sales while SDA sales could continue to be subdued

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